Stock markets rise on hopes that European Central Bank will ease debt crisis

A Toronto Stock Exchange ticker is seen at The Exchange Tower in Toronto. (Aaron Vincent Elkaim / THE CANADIAN PRESS)

The Canadian Press
Published Thursday, July 26, 2012 8:28AM EDT
Last Updated Thursday, July 26, 2012 4:49PM EDT

TORONTO -- The Toronto stock market closed higher Thursday as traders felt more confident about the eurozone debt crisis following a commitment from the president of the European Central Bank to protect the euro.

The S&P/TSX composite index ran ahead 147.24 points to 11,639.75 after Mario Draghi said that the "ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."

The TSX Venture Exchange was up 9.09 points to 1,181.42.

The Canadian dollar jumped 0.55 of a cent to 99.05 cents US, supported by rising commodity prices.

U.S. markets also ran ahead with the Dow Jones industrials up 211.88 points to 12,887.93.

After markets closed, Facebook (Nasdaq:FB) reported stronger-than-expected revenue in the company's first earnings report since its rocky initial public offering two months ago. Revenue grew 32 per cent to $1.18 billion, which beat estimates of $1.16 billion. Adjusted earnings of US$295 million, or 12 cents per share, matched Wall Street's expectations. Its shares fell 10.6 per cent or $2.85 in after hours trading to $23.99.

The eurozone debt crisis has weighed on stock markets for over two years. Greece, Portugal and Ireland -- all countries saddled with huge debts -- have been forced to seek bailouts. The crisis has more recently moved to Italy and Spain, which have been forced to pay ever higher yields in order to finance their debts.

Market watchers took Draghi's comment as a signal that the ECB could be more willing to intervene in markets to lower those borrowing rates -- which the bank has in recent months said is not part of its mandate.

Market sentiment had also been given a boost already on Wednesday, when ECB policymaker Ewald Nowotny suggested that Europe's bailout fund could be given a banking licence. That would give it the ability to borrow money from the ECB. Such a move would be of particular significance for Spain and Italy as the current bailout fund does not have enough money to rescue them both.

The yield on Spain's 10-year government bonds fell sharply following Draghi's comments, moving down 40 basis points to 6.94 per cent. Anything over seven per cent is considered unsustainable in the long run.

Despite the positive reaction on markets, there was some skepticism that the eurozone crisis has turned a corner.

"It remains to be seen," said Garey Aitken, director of equity research at Bissett Investment Management in Calgary.

"Maybe it does translate into something that is quite significant and positive but really pretty much all comments, intentions, summits, (in the past) the end result has been much more disappointing than the original hope."

The prospect of further ECB action helped take some of the sting from a run of largely disappointing earnings reports.

Hopes for higher demand and a weaker U.S. dollar pushed commodities higher.

The energy sector gained 1.79 per cent as September crude on the New York Mercantile Exchange moved ahead 42 cents to US$89.39 a barrel. Suncor Energy (TSX:SU) climbed 99 cents to $31.86 while Canadian Natural Resources (TSX:CNQ) rose 33 cents to $27.83.

Railroad stocks also advanced with Canadian Pacific Railway (TSX:CP) up another $2.08 to $81.05 after the company issued a well-received earnings report on Wednesday. Canadian National Railways (TSX:CNR) was up $1.87 to $88.70.

Financials were also supportive with Manulife Financial (TSX:MFC) ahead 20 cents to $10.42 and Scotiabank (TSX:BNS) improved by 67 cents to $51.28.

The gold sector was in the red for most of the session but ended the day up about 1.1 per cent as bullion gained $7 to US$1,615.10 an ounce.

Barrick Gold Corp. (TSX:ABX) reported quarterly net earnings fell to US$750 million, or 75 cents per share, from $1.16 billion a year ago. The results missed analyst expectations by 18 cents per share, according to average estimates from Thomson Reuters. Its shares dropped $1.45 or 4.2 per cent to $33.04.

Shares in Novagold Resources (TSX:NG) plunged Thursday as the future of its flagship Donlin Creek gold project in Alaska, which it jointly owns with Barrick Gold Corp. (TSX:ABX), looked bleak. Barrick also announced Thursday that a number of projects in its pipeline don't meet cost targets after announcing quarterly earnings dropped 35 per cent. The Donlin project is one of these. Novagold shares tumbled $1.38 or 25.32 per cent to $4.07 on heavy volume of 2.8 million shares.

Goldcorp Inc. (TSX:G) gained $1.66 to $36.50 even as it reported a 45 per cent drop in second-quarter net earnings from a year ago. It said gold prices remained under pressure for much of quarter and cited production shortfalls at its Red Lake operation. The miner reported adjusted net earnings of $332 million, or 41 cents per share, missing analyst expectations by six cents.

In other earnings news, Potash Corp. of Saskatchewan Inc. (TSX:POT) shares added 25 cents to $45.54 as the fertilizer giant reported second-quarter earnings of C$522 million, or 60 cents per share, down from $840 million a year ago. The company said while the results reflect strong underlying performance, earnings were impacted by a $341 million impairment recorded on its investment in Chinese fertilizer company Sinofert Holdings Ltd.

Analysts polled by Thomson Reuters were on average expecting earnings per share of 99 cents. The company also warned of lower than anticipated profits for 2012.